- Decision
- Raise
- Rate change
- 100 bps
- national bank rate
- 16%
The National Bank of Ethiopia Board approved a 100-basis-point increase in the policy rate to 16%, citing renewed inflationary pressure from fuel supply disruptions and the need to offset the removal of the credit cap, while retaining the plus-or-minus 3-percentage-point band. The rate had been held at 15% from September 2025 through March 2026. The central bank fully removed the credit cap as part of its transition to an interest rate-based framework and will apply targeted additional reserve requirements if bank credit expansion threatens the inflation path. Headline inflation rose to 13.4% in May and is expected to remain in double digits over the six-month forecast horizon, while real GDP growth is projected at 10.2% in FY 2025/26 and banks’ loan-to-deposit ratios have improved. The central bank also reduced its foreign exchange commission rate to 1.5% from 2.5% and lowered the goods-export surrender requirement to 30% from 50%, as the current account deficit narrowed to USD 1.8 billion in FY 2025/26. The Middle East conflict disrupted fuel supplies, lifted oil-related inflation risks and weakened the global outlook, although uncertainty may have eased somewhat. The National Bank of Ethiopia reaffirmed its tight stance and commitment to restoring single-digit inflation over the medium term.
Rate evolution
From the start of the period through March 2026, the National Bank of Ethiopia kept the policy rate at 15%, maintaining a tight disinflationary stance and initially reinforcing it with non-rate measures. The holds reflected continued progress on inflation, which the Committee attributed to tight monetary policy, improved agricultural production and gradual administered-price adjustment, even as inflation remained above the single-digit objective, while robust activity, prudent fiscal policy and external accounts supported the stance.
In September, the Board held the policy rate while raising the credit growth target to 24%, stressing careful calibration to avoid loosening the stance or creating financial-stability risks. By December, despite further disinflation and month-on-month deflation, the rate stayed at 15% but the tone turned more guarded as money and credit growth accelerated, excess liquidity from gold-related foreign-exchange accumulation risked unintended expansionary effects, and policy-rate transmission remained weak, prompting retention of the 24% credit cap and a higher reserve requirement.
In March 2026, the Committee again held the policy rate and annual credit growth cap at their existing levels after inflation fell to 9.7% in February and remained within the single-digit objective from December 2025, while flagging upside risks from Middle East tensions, higher global oil prices and supply-chain disruption. On 13 July 2026, the Board raised the policy rate by 1 percentage point to 16%, kept its plus or minus 3 percentage point band unchanged and removed the credit cap, using the rate increase as a counter-tightening measure after fuel supply disruptions linked to the Middle East conflict pushed headline inflation to 13.4% in May and the Committee projected it would remain in double digits over the six-month forecast horizon.